When will the recession end?
The Herald reports:
The views of Finance Minister Bill English and Prime Minister John Key on when New Zealand will emerge from the recession are in stark contrast.
Mr English said yesterday that he thought New Zealand was “unlikely to aggressively grow out of it”.
But Mr Key says that by this time next year New Zealand would be starting to come out of it “reasonably aggressively”.
Mr Key made his comment on March 22 on TVNZ’s Q & A; Mr English made his comments on the same programme yesterday.
Asked about the difference, Mr English said Mr Key “has always had a very positive view about New Zealand. I certainly wouldn’t want to say he is wrong but he is setting a high hurdle here and it’s our job as a Government to meet those expectations – that’s a feature of John Key’s leadership.”
To some degree the differences are not surprising, as there is a calculated division of roles where the PM is more aspirational and the Finance Minister more pessimistic, as he has to try and get back to a balanced budget over time.
But having said that, it is not helpful to have those different roles expressed quite so bluntly. The Government should have some set lines that all Ministers adhere to on the recession and eventual recovery – such as always talking about a range of scenarios. Now you may have the PM focus more on the more optimistic scenario and the Finance Minister more on the more pessimistic scenario – but you want them sounding like they are talking about the same country!
April 6th, 2009 at 6:37 am
The ‘stark contrast’ is indeed a serious disconnect. How can Key big-note his fantastical cycleway while at the same time English dismisses the project, saying that the ’50 million’ won’t be spent this year, next year or the year after’. This makes a mockery of Keys pronouncements. English later said that perhaps a million dollars might go toward the cycleway. One million dollars! That’s 1/5 of what Key payed for his Hawaiian beachhouse! Is that what the cycleway project is valued at by National! It’s a joke and Mr English is making Key look a fool. Together, they are making fools of New Zealanders.
April 6th, 2009 at 8:35 am
Its a question of whether this is a deliberate good cop bad cop routine.. or whether English is a maverick. I hope it’s the former.
JC
April 6th, 2009 at 8:57 am
Perhaps it is a sign that this government allows people to have their own thoughts.
April 6th, 2009 at 9:34 am
Agreed TK allowing even encouraging independent thought is a refreshing change than Helengrad.
April 6th, 2009 at 10:01 am
I don’t think they’re going to do away with the tradition of collective responsibility just yet. Would be a pretty bad look which i’m sure the opposition would quite merrily rip into.
April 6th, 2009 at 10:18 am
I did feel uncomfortable about Bill English’s response to the cycleway questions. Not so much what he said, ie “we won’t be spending $50M this year, next year or the year after” , but the way he said it. His tone was dismissive and slightly patronising – a bit like how a parent might refer to the suggestions of an errant child. A tad disrespectful of his leader, I thought.
April 6th, 2009 at 10:30 am
“When will the recession end?”
Not until the Yanks vote that mind numbingly stupid idiot out of the oval office.
April 6th, 2009 at 10:33 am
As for the rest of the interview, it is now abundantly clear that there will be no further tax cuts in the foreseeable future, and that the Govt will suspend payments to the Cullen super fund. I thought Guyon Espiner did a good job this week, especially his persistent questioning on these issues. That said, it’s probably in the Govt’s interests to drop not-so-subtle hints about these two pieces of bad news well before the May budget, so the announcements come as no surprise.
I don’t envy the Govt one bit. It’s one thing to talk of capping government expenditure, but they will be acutely aware that a massive rise in unemployment will force an increase in spending. And, of course, the other side of the ledger gets hit too, with a corresponding drop in income tax.
Also, Bill English was very firm about the need to cut out “luxury” items. Surely, that must now mean declining to underwrite the 2011 Rugby World Cup to the tune of 10s of millions of dollars.
April 6th, 2009 at 10:50 am
The cycle track is merely one more indicator of how ideologically lost the National Party is. If there is dissent within the party on this matter between Key and English or anyone, then its good thing. There should be more such dissent.
The only real path to freedom and prosperity for this country lies in defeating the leftists within National.
April 6th, 2009 at 10:58 am
“I don’t envy the Govt one bit. It’s one thing to talk of capping government expenditure, but they will be acutely aware that a massive rise in unemployment will force an increase in spending. And, of course, the other side of the ledger gets hit too, with a corresponding drop in income tax.”
That public servants are going to suffer unemployment is inevitable, and the only one’s to blame are the power obsessed socialists who padded government payrolls for votes and never gave a thought to the obvious long term economic outcomes.
I don’t hear anyone from National expounding upon this truth. Why not?
April 6th, 2009 at 12:04 pm
NZ should have been in recession back in 2003, and cutting waste in government spending and ensuring private sector efficiency by reducing regulatory burdens and reducing taxation. But instead we had our economy pumped up by consumers spending their increased house “equity”, which was not related to our earnings at all. We need to realise this; our economy has been inflated and even people living within their means have been earning an artificially high amount. Worst of all, the government enjoyed artificially high tax revenue, and while posturing about how fiscally responsible they were, sought and found new ways to spend the windfall gains.
EVERY measure that Labour 1999-2008 introduced that carried an economic COST, but was assumed to be “affordable” by a booming economy, was NOT affordable under the conditions of reality that were obscured by this artificial boom. This artificial boom was aptly described in the UK situation by Fred Harrison way back in 2005, as Keynesian “stimulus” with households carrying the burden of debt instead of the government. No-one listened to him in the UK and almost no-one is listening to sense in NZ right to today.
Not only are WFF, student loan subsidies, 4 weeks annual leave, Kiwisaver, maternity leave, the boosted RMA, nationalised ACC, “asset” buybacks, and a whole lot of other stuff not affordable under the true 2000-on economy, a whole lot of additional belt tightening was necessary at that time and remains so.
Here are some more of the whammies we have not even started to consider, as our recession bites.
Kids will be removed from Private schools and placed in public ones by parents who can no longer afford the fees.
People with health insurance will cancel, and there will be more demand on public hospital operating facilities. People on waiting lists who gave up and paid their own way through home equity withdrawals will no longer be able to do so.
Workers on WFF who work shorter hours and generally earn less will qualify for top-ups from WFF.
I am only scratching the surface.
Lefty, nanny statists who salivate at the prospect of huge advancements in State size and power, and increasing numbers of people losing their financial independence and becoming increasingly reliant on the state now, need to rethink. Their model is about to die a death of plain, simple, unsustainability.
April 6th, 2009 at 12:07 pm
The global crash problem in a nutshell; investment in productive capital was siphoned off into a speculative bubble in real estate.
Previous speculative bubbles have been mainly confined to financial markets. Why?There is a certain limitation on “supply” of business, in the shares of which speculation can take place. Such bubbles ultimately pop, and investors lose, in a matter of hours.
Speculative bubbles do not take place in commodities for which supply responds to demand. What Austrian economists call malinvestment can occur when produaction is boosted to meet demand that is not “real”, but damaging as this is, it is nowhere near as damaging as speculative bubbles are in their own right. What some people call a “housing bubble”, where a lot of cheap homes are built as in Texas recently, is really “malinvestment”. In these conditions, prices of all real estate is actually kept low because of the over-supply; that is not a “bubble”. Left to itself, these over-supply situations would be limited in their consequences as the suppliers would quickly adjust to the reality of lack of sales, and demographics and migration and economic reality (affordability) would ultimately take care of the empty homes. But price bubbles just carry on and on inflating until they reach the point where the economy cannot sustain them, by which time catastrophe is the unavoidable consequence.
Why did speculative price bubbles not take place in real estate before this particular time? The simple reality is that land supply was not restricted to the same extent or for as long as was required for bubbles to get underway. An interesting exception I can point you to, is the UK. The UK has been experiencing severe housing price bubbles since way back in the 1960’s; the obvious consequence of their much earlier adoption of anti-development land use restriction policies.
Allowing these bubbles to occur in real estate is an economic error of an order of magnitude of difference to bubbles in financial markets which the small proportion of people with money to burn enter voluntarily, and the fortunes that are made on paper and wiped out do not leave huge economy-distorting amounts of debt behind them.
Not so housing. Housing affects everybody. The total sums of money are not only much larger than the sharemarket, the debt that remains when the values on paper collapse is an order of magnitude larger and affects a high proportion of the population. Nor does the bubble burst in a matter of hours, with values quickly resetting at realistic levels; denial and paralysis besets the whole economy for years.
Productive capital gets starved of investment both coming and going: both as the bubbles were inflating and as they deflate. This is grave in its implications.
Did ANYONE have the wisdom to see this coming? I’ll tell you what, precious few have even got the wisdom today to see that this is “what happened” and what “is happening” still.
April 6th, 2009 at 12:08 pm
I honestly believe that our economies in the Western world will not recover this time unless we completely rehash our whole approach to the utilisation of resources.
ALL real wealth has been created through the utilisation of resources. Think about this. Any wealth that we are redistributing or spending on non-productive items, was created only through resources being utilised somewhere further back along the chain of economic activity.
The efficient utilisation of resources is one part of this question. Free markets must be allowed to operate. The other part of this question is utilising the resources at all in the first place.
We need to wind our political clocks back to the era of our grandparents when the utilisation of resources was regarded as a positive good in its own right, not something to be balanced against quality of life issues that carried economic costs that we could not afford in those days. We are now back to those days: we have been living beyond our means for at least a decade and payback of debt will require facing economic reality. We THOUGHT that that debt was secured against asset values. Actually, it hardly matters whether it is or is not, when those assets are not productive and we are eroding away our ratio of productive to non productive assets.
April 6th, 2009 at 12:40 pm
Unfortunately Phil we live in a society. The free market is never free or separate from the society it operates in. Why do we have no Capital gains tax on non residential real estate? Surely this will help productive investment.
April 6th, 2009 at 1:07 pm
bchapman…….The reason there was no capital gains tax on residential real estate was because too many politicians including the Prime Minister had a vested interest in ensuring there was none as they built up their portfolios.
PHIL….a very good summary especially the first page……Personally I prefer our political leaders to state their position honestly rather than all adopting the Leaders point of view we had enough of that over the past decade…They are both just guessing and emergence from the recession will depend (as English did comment) on credit availibility, and also on the health of our customer nations. Increased productivity, decreased dependency will also be crucial. Then there is the Global Warming Taxation Scam which could herald prolonged global depression. When illustrating the difference of opinion among commentators on when the recession will end, it is useful to recall that BOLLARD publicly stated it was over last December.
April 6th, 2009 at 1:09 pm
Is the recession sposed to end
I believe its the start of a new international paradigm that’s gonna get a lot worse before it gets better.
Ironically for us, our money grabbing banks have been our saviours.
Tragically for America, no administration legislated againt wall st even though the problem and foresaw the end result.
where govts pick and choose to inetrvene is the eternal mystery I guess.
On another note, Micheal Moore was left speechless for two days after Obama fired the CEO of GM.
That tells me presidents can make decisions individually without permission. How far that extends of course is never revealed. If it was a common occurence, would be headed in a different direction than the NWO I suspect.
April 6th, 2009 at 8:05 pm
bchapman, that has been debated endlessly on interest.co.nz.
It is clear that the existence of capital gains taxes did nothing to stop housing bubbles happening in countries that had them. It looks likely to those who have looked hard enough, that the deciding factor in whether a housing bubble happened or not, is that there were restrictions in the use of land for housing that resulted in supply only occurring at an inflated price. That is certainly the problem in NZ as well.
April 6th, 2009 at 10:08 pm
Well Phil,
on a brighter note real estate seems to be coming right in Akld.
April 7th, 2009 at 11:50 pm
Not for a good long time.
The punishment must fit the crime.
November 29th, 2010 at 9:12 pm
While the financial side of the economy may have returned to some small measure of growth it has been at the expense of the job market. Unemployment seems to have reached a new and dangerous equilibrium. The rich have gotten much tax relief and the poor and middle class are hit with greater fees and regressive sales and excise taxes. At the same time we see the right-wing propaganda that claims the rich pay more than their fair share of taxes. There will be an explosion at some point in society because of the conflict where the poor are being asked to shoulder a greater and greater share of this burden
Didi the recession end